In a recent en banc decision, the Missouri Supreme Court (Court) upheld the decision exempting from use tax purchases of information technology equipment made by Walmart subsidiary Walmart Starco LLC (Starco). Appellant, Missouri Department of Revenue (Department), assessed $8M in use tax, interest and penalties against Starco, asserting the company could not claim a resale exemption.
“The purpose of the resale exemption is to avoid “multiple taxation of the same property as it passes through the chain of commerce[.]””
Information technology equipment
Starco, a wholly-owned subsidiary of Wal-Mart Stores, Inc., purchased information technology equipment (Equipment) for resale to Walmart and Sam’s Club stores throughout the country. This Equipment included electronic price scanners, credit card readers, computers and servers.
Some of this Equipment needed additional software or hardware in order for it to be used in Walmart and Sam’s Club stores, requiring Starco to load it onto the equipment, test it and package it for resale. Starco then claimed a resale exemption from Missouri use tax on the Equipment.
administrative hearing commission ruling
In denying the exemption on audit, the Missouri Director of Revenue (Director) stated that Starco could not claim the resale exemption because it had installed and tested software and hardware on the Equipment and did not hold the Equipment solely for the purpose of reselling it.
However, on review with the Administrative Hearing Commission (Commission) the Commission ruled that “the undisputed facts show that [Walmart Starco’s] sole purpose for the . . . Equipment was to resell it to Stores/Club. Installing software or hardware specific to those stores’ needs only further evinces that purpose.”
missouri supreme court ruling
The Court upheld this decision, ruling that subjecting the Equipment to use tax would result in double taxation because use tax was being remitted to the jurisdictions where the Equipment was eventually delivered and used.
In filing its appeal, the Director relied on Custom Hardware Engineering & Consulting, Inc. v. Director of Revenue, in which the taxpayer purchased computer parts and tested and certified those parts for use by its customers. In Custom Hardware, the court held that the resale exemption did not apply because the taxpayer did not purchase the computer parts for resale.
Unlike the facts in Custom Hardware, Starco’s sole purpose for the Equipment was to resell it. The Court stated that Custom Hardware is the “polar opposite” of this case and does not support the Director’s argument, and therefore upheld the decision to overturn the $8M assessment.
resale exemptions
Resale exemptions from sales tax are available in taxing jurisdictions and should be used to prevent unnecessary double taxation. Although the exemptions are readily available, there are considerations to keep in mind such as state-specific forms and requirements, as well as the expiration of current, valid certificates.
Libertas is experienced with resale exemption certificates and compliance. Need more information about potential savings for your company? Contact us to schedule a free consultation.